The art of automotive

As a private client solicitor with a passion for motorsport, I spend a lot of my non-working time in and around vehicles. Largely as a result of my father’s passion for motorsport and classic cars. I grew up watching British Touring Cars and was lucky enough to stand at Graham Hill bend in Donington Park on a wet Sunday in 1993, to watch the incredible Ayrton Senna make one of his most memorable opening laps in Formula 1, the ‘lap of the gods’.

I have continued to pursue my interest in motorsport competing in single seaters and touring cars across Europe, which has left me with unforgettable experiences. The high-risk and adrenalin-fuelled nature of racing is, on occasion, a contrast to the day-to-day life as a Private Client solicitor. I find that my enthusiasm for cars and racing is shared by colleagues, clients and other professionals I work with and is an engaging topic of conversation.

The attraction and attention given to particular models is intriguing and can often stem from their success on track (Ford GT40) or rally stage (Audi Sport Quattro S1), or from their appearance in iconic television programmes (Robin Reliant!) or films (Aston Martin DB5).

There are not many people who are lucky enough to own a car in this ‘elite’ vehicle category, but there is a phenomenal classic car market in the UK which has been extremely active in recent years. The number of historic vehicles registered in the UK increased from 1.04 million to 1.539 million between 2015 and 2021, and the total spending in the historic vehicle sector reached £7.2 billion in 2021. This is a staggering £1.7 billion more than 5 years ago. Furthermore, the Knight Frank Luxury Investment Index Q2 2023 indicated that ‘cars’ saw a 118% price range change over a 10-year period, and 5% over a 12-month period (down from 185% in 10-year and 25% in 12-month periods from Q4 2022).

Whilst buying a classic car brings joy, selling or gifting it may be accompanied by heartache but fortunately not a capital gains tax (CGT) bill. This applies if it is a mechanically propelled road vehicle, constructed or adapted to carry passengers. Single seater sports cars, racing cars, motorbikes, scooters and similar do not qualify for this exemption, although if they are privately owned and not used in a business they may be exempt from CGT as a tangible moveable wasting asset. However the personalised number plate attached to it is not exempt from CGT.

A key area of concern for clients is what should happen to their cherished items on death, including artwork, jewellery and vehicles. Only 44% of UK adults have prepared a Will, and so if you are one of the 56% I recommend you consider making one now to ensure your wishes are fulfilled. In general, if you are domiciled in the UK, or are not domiciled but have assets in the UK then inheritance tax, which is levied at a flat rate of 40%, will apply to all or part of your estate on death, subject to the availability of any allowances, exemptions, and reliefs. Cars do not have a specific relief however they can be part of a wider estate planning exercise for tax efficiency.

If your desire is to retain the vehicle within the family, you may be able to make use of conditional exemption which allows the inheritance tax otherwise payable to be deferred provided the vehicle is on public display in a suitable environment for at least 28 days a year. Alternatively, you may be happy to part company with the vehicle permanently offering it to the nation through the Acceptance in Lieu scheme with its value being used to pay some or all of the inheritance tax on other assets in your estate.

In either case the vehicle must meet the pre-eminent criteria for its national, scientific, historic, or artistic interest. Here ‘national’ can mean local with the vehicle being capable of fulfilling a central rather than marginally significant role in the context of a display in a public collection or historic building. It must also have an especially close association with UK history or national life, or the study of a particular form of learning or history.

The determination of qualification and value rests not with HMRC but with an independent panel of experts known as the Acceptance in Lieu Panel who are administered by the Arts Council. Their independence is demonstrated by the fact that the Panel has been known to increase the value applicable to an object offered in lieu to reflect what they believe to be the market value.